Hedge Funds Cut Gold Bull Bets Most in Month: Commodities

John Paulson, president of Paulson & Co. Inc. held his gold holding in the first quarter, having told clients in November that he personally wouldn’t invest more money in his bullion fund. Photographer: Jin Lee/Bloomberg

May 19 (Bloomberg) -- Hedge funds cut bullish bets on gold
futures by the most in a month as holdings of physical bullion
in exchange-traded funds dropped to the lowest since 2009.

Money managers’ net-long position contracted for the second
time in three weeks in the five trading sessions ended May 13.
The drop in bullion held through global ETPs extended into a
ninth week, with about $6.9 billion of value erased.

Futures retreated 7.1 percent since reaching a six-month
high in March and Goldman Sachs Group Inc. is among those who
say the decline has further to go. Prices tumbled by the most in
three decades in 2013 and U.S. equities reached records since
then. Billionaire John Paulson held his gold holding in the
first quarter, having told clients in November that he
personally wouldn’t invest more money in his bullion fund.

“All the leading indicators would at least suggest solid
and firming U.S. growth,” Sameer Samana, senior international
strategist at Wells Fargo Advisors LLC in St. Louis, which
oversees $1.4 trillion, said on May 15. “You could see some
pretty sharp declines in gold into year-end. The fundamental
case has been weakened.”

Short Holdings

The net-long position in the metal fell 8.3 percent to
94,329 futures and options as of May 13, U.S. Commodity Futures
Trading Commission data show. Short holdings betting on a
decline rose 10 percent to 31,283, the highest since February.

An accelerating U.S. economy means prices will fall to
$1,050 in 12 months, Goldman Sachs forecasts. U.S. claims for
jobless benefits reached the lowest since 2007 in the week ended
May 10, Labor Department data show. Spending at American
retailers held steady in April after a surge in the previous
month that put economic growth on track to pick up in the second
quarter, Commerce Department figures showed May 13.

Paulson & Co. held its gold position in the SPDR Gold Trust
at 10.23 million shares in the first quarter, a government
filing showed last week. The firm is the largest investor in the
trust, the biggest exchange-traded product backed by gold, and
has left its stake unchanged for three consecutive quarters.

‘Real War’

While analysts at Goldman “remain bearish” on gold, “the
uncertain outlook in Ukraine may continue to delay this move
lower,” the bank said in a report May 13. Prices gained 8.1
percent this year after Russia annexed the Crimean peninsula in
March, followed by clashes between pro-separatists and
government forces in nearby eastern regions of Ukraine.

There’s already a “real war” between government forces
and separatist fighters in Ukraine’s east and south, Russian
Foreign Minister Sergei Lavrov said during a May 14 interview on
Bloomberg Television. Bullion’s 30-day volatility slumped to the
lowest in a year, and futures in May have traded within a range
of about $44.

“Gold’s getting pulled in so many different directions,”
Dan Denbow, portfolio manager at the $1 billion USAA Precious
Metals and Minerals Fund in San Antonio, said May 16. The
“upside” driver for the market “would be geopolitical risk,”
he said. “Longer term, we’re probably still supportive of gold
prices.”

In the five days through May 15, investors pulled almost
$180 million from exchange-traded funds that track commodities,
including a $35.7 million decline from those backed by precious
metals.

Copper, Crude

Combined net-wagers across 18 U.S. traded commodities fell
2.5 percent to 1.59 million contracts as of May 13, the lowest
in 11 weeks, the CFTC data show.

Bets on higher copper prices surged to 13,174 contracts,
the highest since mid-January, from 698 a week earlier. Futures
in New York advanced 2.1 percent last week. Stockpiles tracked
by the London Metal Exchange fell for seven straight weeks to
the lowest since 2008.

Wagers on rising oil prices gained 3.9 percent to 311,195
contracts. West Texas Intermediate climbed 2 percent in New York
last week. Total U.S. petroleum consumption reached 19.4 million
barrels a day, the most since January, the Energy Department’s
statistical arm said May 14.

A measure of net-long positions across 11 agriculture
products fell 2.7 percent to 996,733 contracts, the fewest in
nine weeks. The S&P GSCI Agriculture Index of eight crops slid
3.2 percent last week, the largest drop since November.

Wheat Holdings

Investors increased their bullish wheat holdings to the
highest since November 2012. Prices fell for eight straight
sessions through May 16, the longest slump in 10 months.

World wheat stockpiles will rise 0.5 percent to 187.4
million metric tons by June 1, 2015, the U.S. Department of
Agriculture said May 9. Corn reserves before the 2015 harvest
will rise for a fourth straight year, and combined grain
supplies are projected at the highest since 2001, the agency
forecasts.

“As we see the crop going in the ground, it’s potentially
a huge crop again,” Shonda Warner, managing partner of Chess Ag
Full Harvest Partners in Clarksdale, Mississippi, which oversees
about $150 million, said May 15. “With any kind of normal
weather, I think we should see prices move lower.”